Walmart, others voice opposition to Va. port privatization

Tuesday, February 05, 2013

All 28 speakers at a public hearing Monday evening in Norfolk urged the Virginia Port Authority board of commissioners to reject proposals by APM Terminals and a consortium led by the infrastructure investment arm of JPMorgan to take control of the Port of Virginia, highlighting the almost unanimous opposition that has arisen among industry and community stakeholders towards privatizing the prized state asset.
The VPA board held the public meeting to gather feedback about taking the unprecedented step of having a private company operate an entire North American port or whether to stick with Virginia International Terminals (VIT), the non-profit state-owned company that manages the marine terminals in Norfolk, Portsmouth and Newport News. Gov. Bob McDonnell in 2011 replaced the entire VPA board because of concerns about the port’s performance in terms of cargo throughput and financial strength. Sean Connaughton, his secretary of transportation, has repeatedly claimed that the Port of Virginia is not well managed and is falling behind other East Coast competitors.
“I ask you to seriously consider reforming the VIT and VPA, but for Lord’s sake don’t change what has worked,” Robert Bray, the former port director responsible for unifying the separate city terminals in the 1980s, said.
VIT received a major endorsement from Walmart, the world’s largest company by revenue and the Port of Virginia’s largest customer.
“I would like to express our appreciation of the partnership that has been cultivated between Virginia International Terminals and Walmart Logistics. There is a distinct difference in our port that we believe stems from the inclusive relationships that the leadership of VIT, in particular (Chief Operating Officer) Joe Ruddy, continues to foster,” Doug Corbolotti, general manager of Walmart’s import distribution center in Williamsburg, said in a letter e-mailed to VIT officials and read by Arthur Moye, Jr., executive vice president of the Virginia Maritime Association. American Shipper was allowed to view the e-mail and confirm its authenticity.
“Over the past few years, the port of Norfolk has been a model of openness through the sharing of information. We do not operate in silos, protecting our own interests without a thought to the impact of others with whom we do business. It is this model that keeps the port improving.
“Of the five ports Walmart utilizes, Norfolk has been recognized as the most efficient port. We are thankful for our success and attribute much of it to the efficiencies we have benefitted from over the past few years,” Corbolotti wrote.
The largest U.S. retailer didn’t mention APMT and JPMorgan, but by siding with VIT made its preference clear.
APMT made an unsolicited conceptual proposal last spring for the right to operate all the state-owned terminals in Newport News, Portsmouth and Norfolk, plus the inland port in Front Royal for $3.1 billion to $3.9 billion, based on the net-present value of upfront money, infrastructure investment, and a transfer in ownership of its modern, highly efficient terminal in Portsmouth, which it leased in 2010 to the state for 20 years. RREEF, the real estate arm of Deutsche Bank, responded to a subsequent state solicitation for competing offers to run the port. In December, RREEF was replaced as the consortium’s financier by JPMorgan, which partnered with Maher Terminals, an independent terminal operator owned by Deutsche Bank, to be in charge of container operations and Noatum, the largest port operator in Spain, to oversee bulk vessel service.
Noatum is majority-owned by an investment fund managed by JPMorgan.
Two months ago both parties submitted detailed proposals for how they would operate the port for 48 to 50 years, and why the state would end up with greater revenue while shifting investment risk from the state to private-sector operators.
The main opposition themes revolve around control of all terminals by a single private entity. APMT’s sister company, Maersk Line, is the largest container shipping company in the world and maritime industry officials say it could engage in port arbitrage when it was in danger of missing minimum volume guarantees at other ports, diverting discretionary cargo from Norfolk to Charleston, New York-New Jersey or other rivals. Also, port users say a private operator could use its exclusive power to squeeze out truckers and other service providers it didn’t want to work with and raise rates port-wide.
A representative from Atlantic Container Lines, a small transatlantic carrier, said it is feeling the pinch of rising fees in Europe where APMT controls the entire port. It has to decide whether to absorb the costs or find another port. The carrier initially supported APMT’s proposal to run the Port of Virginia, but is reevaluating its position, he said.
Other carriers, including CSAV, Hapag-Lloyd, "K" Line, NYK Line, and OOCL, have expressed their desire to maintain a neutral operating environment, and some have hinted that they might consider alternative ports on the East Coast if circumstances warrant.
Writing on behalf of the Grand Alliance, Peter Braedel, senior vice president corporate operations for Hapag-Lloyd, said in a letter last August addressed to the Virginia Maritime Association and posted on its Website that the vessel-sharing consortium “has some concerns about long-term terminal capacity availability provided at fair and reasonable terms and conditions, and the future competitiveness of the Virginia operation for all our collective customers in the region.”
Opponents also worry that a private operator would make bottom-line decisions without regard to Virginia’s overall economic development strategy. The state shouldn’t give up a valuable asset such as the Port of Virginia without first making changes to maximize the VITs capabilities and changing the VPA’s mission to focus more on profitability than pure economic development, they argue.
VIT supporters note the Port of Virginia in 2012 achieved its second-best year in history for volume with 2.1 million TEUs, up 9.8 percent from the prior year.
John Crowley, a senior vice president at APMT, warned the commissioners that his company would regain control of its Portsmouth terminal in 17 years and vigorously compete against VPA facilities, creating a divided port. Joseph Dorto, the outgoing chief executive of VIT, scoffed at the veiled threat, saying APMT entered the lease agreement because it had been outflanked by the VPA in securing carrier commitments and did not have enough traffic on its own for an adequate return on its investment. Another speaker said the VPA should take advantage of its monopoly position for the time being and reconsider a concession for the port when the APMT lease expires.
Thomas Godfrey, the chairman of the Virginia Maritime Association, said the upfront payments and accounting schemes used by the proposers to value the port were “almost akin to a reverse mortgage.” He urged the board to “embrace the long-term control of the port.”
Meanwhile, state legislators in the General Assembly are trying to derail any outsourcing of port operations. On Monday, the Senate by a vote of 38-1 approved S.B. 1305, which would implement some structural and leadership reforms designed to make the port more competitive and prevent the state from accepting any unsolicited proposals under the Public-Private Transportation Act (PPTA), or other authority, to own or operate any seaport or port facility. The bill would install the VPA executive director as a non-voting member of the Commonwealth Transportation Board to increase intermodal collaboration and add the head of the Virginia Economic Development Partnership to the VPA board to better coordinate statewide marketing efforts. It also provides that VPA board members may only be removed by the governor for misconduct, not at his pleasure. The bill grants the powers of industrial development authorities to the VPA and strengthens protection of proprietary information in customer contracts and other data exchanges. It exempts the VPA from obtaining approval of procurement policies from the Department of General Services, and from state information technology requirements to eliminate costly bureaucratic hurdles that private companies don’t face.
The legislation attempts to improve oversight by requiring the VPA to submit its annual operation plan and budget to the transportation secretary and the Department of Planning and Budget. Another provision requires changes to the relationship between the VPA and VIT to eliminate duplication and expenses, such as dual marketing departments. The bill also authorizes the VPA to expend state funds for the development of a greenfield terminal on Craney Island.
The House of Delegates is now considering a companion bill.
State officials say the VPA plans to vote on which direction to proceed at its regular meeting on March 26. Any deal recommended by the Board must be approved by Gov. McDonnell. But it is unclear if the governor can finalize a deal on his own if the commissioners reject the offers and opt to stick with the status quo. In October, Attorney General Kenneth Cuccinelli issued an opinion stating the VPA is the sole state entity with authority to decide on whether to privatize the port, and if so, which entity to pick. Before that, McDonnell said that the power resides with his office under the PPTA and designated Connaughton to receive the proposals and evaluate them. Connaughton has said the governor is not bound by the advisory “opinion” on the matter and has solid legal footing to make the final call. - Eric Kulisch